Why Contactless Cards Aren’t Taking Off In The UK

The other day, Smile*, one of the banks I have an account with, sent me a new contactless card.

The contactless symbolThe striking thing about this otherwise ordinary event was that the bank didn’t mention that it was a contactless card. I know it’s a contactless card because it has the contactless symbol on it. But nothing in the letter the bank sent with the card so much as mentioned the new contactless functionality. Logically, one of the following must be true:

  • Uncharitably, it could just be that the left hand doesn’t know what the right hand is doing, and the product team forgot to tell the marketing team it was doing anything new.**
  • Possibly, some slip meant that my envelope didn’t contain any marketing. But there’s no mention of contactless cards on the bank’s website either.
  • Alternatively, the bank simply reckons that the benefits of promoting the contactless functionality are so marginal that it’s not even worth the effort of changing its standard letter (which promotes card protection insurance in extensive detail).

But it got me thinking about why contactless cards haven’t taken off in the UK. It ought to be a promising market for contactless payments: there’s high credit and debit card use, and Transport for London’s Oyster contactless ticketing system means millions of Londoners have used contactless technology every day for the past decade. There are now some 21 million contactless cards in circulation in the UK and around 110,000 contactless points of sale, with most large banks, including HSBC and Lloyds TSB, now rolling out contactless cards. While the first merchants to accept contactless were mostly fast-food retailers like Pret A Manger and McDonalds and, oddly, the National Trust, large high-street retailers like Boots and WHSmith are now committing to contactless including, crucially, supermarkets like Asda, Tesco, and Waitrose. So why have contactless cards failed to take off?

You can lead a horse to water, but you can't make it drink. The introduction of contactless cards in Britain in 2007 came shortly after the successful introduction of chip-and-PIN cards into the UK. I suspect the success of that mandatory change to reduce fraud caused some in the industry to underestimate the substantial difficulties in persuading consumers and merchants to adopt a new payment system. Simply putting contactless cards into people’s pockets is nothing like enough to change their payment habits.

My colleagues in Forrester’s Consumer Product Strategy team have a framework called the Convenience Quotient: to be adopted, any new product’s benefits have to be greater than the barriers to use. Like all the best frameworks, it’s simple but forces you to think. The problem facing contactless cards is that the benefits are too marginal for many consumers to overcome the barriers to adoption in any great hurry:

  • Contactless cards are simple and marginally faster. To take off, any new payment system has to be clearly better in some way than the existing alternatives in at least some scenarios. Contactless payments are marginally faster than a contact chip-and-PIN payment or fumbling for coins in a pocket. But that's not enough of a benefit.
  • A still from Barclaycard's waterslide contactless TV ad. Source: Barclays.comThere are few other obvious benefits. Barclaycard has run big TV advertising campaigns to promote contactless payments but has struggled with the message. The ads showed how useful contactless payments are when you’re . . . on a waterslide or on a rollercoaster. Hmm.
  • There’s no spark to ignite consumer adoption. People need a reason to learn how to use any new system and change their habits. The Oyster card has ‘must-have’ journeys and a single merchant (Transport for London) willing to double its paper ticket prices to drive adoption. Contactless card payments lack any similar way to ignite adoption. There’s nothing you can only get by paying with contactless.
  • There’s a £20 transaction limit.The £20 transaction ceiling -- while a big improvement on the original £10 limit -- restricts contactless payments to smaller transactions. There’s an effective lower limit too, because many smaller independent merchants (and some big ones) won’t accept card payments below about £3 to £5.
  • Theres a risk of fraud. The very simplicity of contactless payments without using a PIN creates a perceived and actual (if slim) risk of fraud, as shown on the influential Channel 4 News.
  • Merchants have been sceptical. Accepting contactless payments make most sense for merchants with high volumes of transactions that can profit from a faster throughput. But there simply aren’t that many merchants in that category apart from fast-food retailers. Other merchants have been sceptical of the benefits and are in no rush to start paying interchange fees on small transactions -- which is one reason why it’s taken many of them five years to upgrade their point-of-sale systems. As the British Retail Consortium puts it: "any move to replace cash must take into account the very low costs incurred today."

None of this means people won’t use contactless cards. Just don’t expect customer behaviour to change fast.

So, having written off contactless cards, the big question is whether mobile contactless payments offer enough additional benefits to be more successful. But that’s another story. (Forrester clients can read our perspective in my colleague Denée Carrington’s Why The Digital Wallet Wars Matter research.) If you're interested in this topic, I’m taking part in a webinar held by Monitise this coming Tuesday, 9th October, on the evolution of mobile payments in the UK.

Do you think we’re right about contactless cards?


*If you haven’t heard of Smile before, it’s probably because it appears to rely entirely on word-of-mouth marketing. It’s also the only brand I can think of that’s defined in the past tense: smile was the UK’s first full Internet Bank (its words, not mine).

** Before I lose too many friends at the Co-operative Banking Group, I should say that none of the UK’s banks other than Barclaycard and Barclays have done much to promote contactless cards either. I’ve also written nice things about the Co-operative Bank on this blog in the past.


Consumer Journey Fit

A very nice piece relevant to the technology, local culture and company positioning.

You kindly point out that Barclay card miss the point with their advertising campaign which in effect highlights the issue with contactless/NFC cards - they only really add value to the consumer journey if they are in a hurry ... or on a slide

Payment for goods need to be separated into payment - the transfer of a value from one to another; and checkout - getting access to the product. In conventional retail these happen at the same time at the till/checkout but they don't have to - you can pay in advance for example in a reservation or pre-order.

Once these are been separated the value to contactless is a little easier as we can breakdown the checkout process. The important part of the this process is who is in control as this defines the best checkout solution

1. Select products and checkout
Choose your products from a shelf and take to till. Here the control is generally with the vendor as they control how many till (checkout points) there are. As its slow any payment method is going to be absorbed into the process. Supermarket or clothes shopping are examples.

2. Place order and checkout
Go up to the vendor and ask for a product. They acquire/make the product and bring it back. Again the vendor is in control as they are the RDS (rate determining step) and so the payment system doesn't matter as the transaction time can be absorbed. Ordering a coffee would be an example.

3. High demand - low supply
Limited amount of products which a lot of people want to get hold off. Vendor is in control but the consumer will know that the fastest payment method would obtain the goods. Fast or defined payment systems in place. This is very true in ticketing events and online but can be used in the physical stores

4. Legal restrictions
In some cases checkout the payment method is either defined legally or by industry practice. Used in very large transactions such house purchase where credit limits are too high for conventional payment and checkout.

So contactless has a place in standard retail where the vendor wants/encourages/demands consumers to checkout quickly or consumers see contactless as easier than EMV. The ease is defined as the convenience of checkout and so will be popular where consumers want to be quickly processes – drive through payments, cinema tickets, sale item are a good examples .

It’s going to be an uphill slide for contactless to make an impact which will require changes to the consumer check out process but will retailers change a standard search, find, queue, checkout leave model…

John McGinty
Partner - BlueOak_ Solutions

Training (or lack thereof)

Another critical barrier is staff training. Contactless has great potential in the hospitality industry for the likes of Pret and McDonalds, where average basket size is below the £20 ceiling and one of the main concerns for such a retailer is reducing queue sizes and transaction times. But, try presenting your contactless card every time you buy something in Pret and 90% of the time you are met with one of 3 reactions...

1. Your server shrugs, takes the card out of your hand an puts in in the Pin device
2. Your server shrugs, smiles and says "it's broken", takes the card out of your hand an puts in in the Pin device
3. Your server shrugs and stares at you waiting for you to do something

The high volume of staff turnover means that staff often don't know what contactless cards are themselves.

Disabling contactless technology in Smile/Co-op cards

Someone may find this useful: